Just think about how many traders and investors bought call options in the popular iPath S&P 500 VIX Short Term Futures TM ETN(NYSEARCA:VXX) last week when the market sold off. The problem is that many retail traders may have bought put options that expire this coming Friday. As you know, volatility is crumbling today falling by nearly 20.0 percent.
Traders and investors should note that the institutional investors play a lot of games with individual equities ahead of options expiration. This Friday is options expiration for the month of August. Last week it was reported that call buying in volatility was at an all time high after last Thursday's stock market decline. Today, many of those trades are sharply out of the money as the institutional investors flip the switch and rally stocks. The lesson here is to not chase parabolic moves after they happen. This one rule will help keep many traders and investors out of trouble especially ahead of a monthly options expiration.
Nicholas Santiago
InTheMoneyStocks
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